McDonald's powers through Q3, cautions about Oct.

By ASHLEY M. HEHER

posted: 34 DAYS 12 HOURS AGO

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CHICAGO -McDonald's Inc., a notable winner from the recession because of its cheap menu, cautioned Thursday that the company could post disappointing U.S. sales figures in October.

That first hint of weakness from a company that's managed to thrive as its competitors falter came as it posted a solid 6 percent profit increase.

CEO Jim Skinner told investors that sales in U.S. locations open at least a year would be "flat to slightly negative" in October.

If that happens, it would be only the third time the monthly figure hasn't climbed in 6 1/2 years and shows McDonald's isn't immune to the pressures on customers who are eating out less and spending less when they do.

"This is due in part to the current economy environment and strong results from a year ago," he told investors during a conference call, causing a momentary frenzy with investors. "But we do not believe this is a change in the trend of performance in the U.S."

Last year, sales in U.S. locations open at least a year rose 5.3 percent in October.

"We're recession resistant, not recession proof," Skinner said. "Our business model operates well when our customers are doing well."

McDonald's strong recession performance continued in the third quarter when profit climbed to $1.26 billion, or $1.15 per share.

Meanwhile, revenue slid 3.5 percent to $6.05 billion, dragged down by fluctuating global currencies.

Excluding the impact of those currency fluctuations, McDonald's said its third quarter revenue grew 2 percent.

Even with the caution on U.S. sales, analysts expect McDonald's to continue to best the competition.

Standard & Poor's restaurant analyst Mark Basham said he expects McDonald's to keep pummeling competitors in the months ahead and maintained his "strong buy" rating on shares.

Deutsche Bank analyst Jason West said the results highlighted the company's strong performance.

"Overall a solid result amidst a very challenging restaurant industry," he told investors in a research note.

During the three months that ended Sept. 30, McDonald's said sales in restaurants open at least a year rose 3.8 percent, led by performance in Europe where the figure climbed 5.8 percent.

In the U.S., the measure grew 2.5 percent, helped by Americans' healthy appetite for the third-pound Angus burgers that debuted nationwide this July as well as its espresso coffee drinks. Executives also said longtime menu stalwarts, including the Big Mac and the quarter-pounder, and its popular dollar menu continue to do well.

"At a time when consumers are look for familiarity and a taste that they know, McDonald's stands out," Skinner said.

Third-quarter profit was better than Wall Street forecasts, even though the fast food company's revenue fell shy of expectations. Analysts surveyed by Thomson Reuters expected the restaurant chain to earn $1.11 per share on revenue of nearly $6.1 billion.

Also Thursday, Skinner said McDonald's is delaying opening about 100 restaurants this year — nearly half all of them in China — because the company feared those stores wouldn't turn fast profits.

"Being prudent regarding the economy and where we find ourselves in some of the markets, it was appropriate for us to pull back on the openings," he said.

McDonald's shares climbed $1.52, or 2.6 percent, to $59.84 in late-afternoon trading Thursday. It had been trading as high as $60.60 before Skinner's comments on U.S. expectations.

2009-10-22 15:07:10